Tuesday, October 30, 2012

The Moral Character of Mitt Romney

This is an ethics blog.

With the election getting near, I have to note the low moral quality of Romney’s character.


The first moral flaw is a basic dishonesty. Romney does not “distort” or “spin” facts. He outright lies. Here are four examples.

(1) His first advertisement against Obama quoted Obama as saying, “If we keep talking about the economy, we are going to lose.” In fact, this was taken from a speech where Obama was quoting a McCain aid from the previous campaign. The quote is, “Senator McCain’s campaign actually said, and I quote, ‘If we keep talking about the economy, we’re going to lose.’ ”

(2) Romney ran advertisements saying that the Obama administration was seeking to end the work requirements for welfare. In fact, the Obama told some Republican governors who had asked for exceptions that if they can prove that they get a higher employment percentage using their own system that they can get an exception from federal mandates.

(3) The Romney campaign falsely accused the Obama administration of restricting voting rights for the military in Ohio. In fact, the Obama administration was seeking to extend a deadline for non-military members as well – which did not change the rules for military voters one bit.

(4) Romney is currently running an advertisement that says that Chrysler was sold to the Italians who are shipping manufacturing jobs for the Jeep to China. In fact, the company is expanding Jeep production in the United States (while, at the same time, building factories in China to help to meet demand in that country).


A bully is a person who abuses power over others – concerned with his own convenience and seeming to enjoy “putting others in their place” where their interests and concerns do not matter.

Three incidents highlight this disposition.

(1) An incident in high school where Romney rounded up a group of friends in order to assault and forcibly cut the hair of a long-haired student that he and his clique did not like.

(2) Having his dog ride on the roof of the car in family outings.

(3) His comment about the fact that he does not need to worry about the 47% who never pay taxes, who view themselves as “victims” and who are too lazy to do anything constructive with their lives and who will be voting for Obama.

Romney wants to add $200 billion per year to the military budget.

What does a bully want with that kind of power? And what will happen to foreign policy as Romney tries to bully the rest of the world?

Contemptuous and Secrative

"You can't handle the truth!"

Romney is secretive – he does not think that other people need to see what he is doing or what he has done. His behavior gives every indication of, "If they knew what I had done - or will do - they would not approve - so it is best that they do not know."

Here are three examples:

(1) When leaving office as governor of Massachusetts, he and his staff bought the hard drives off of their government computers and erased all records they could legally erase.

(2) Romney refuses to reveal any information from his tax returns more than two years back.

(3) Romney has not given any details on how he plans to cut taxes, increase military spending by $200 billion per year, and pay down the deficit, all at the same time.

This not only shows a secretive nature – giving us good reason to ask what he will be doing behind closed doors as President and who will be profiting by it. It also demonstrates a basic contempt for others. “You can’t handle the truth!”

Of course, his secretive nature and his contempt for giving us the truth goes hand-in-hand with his willingness to lie.

Seriously, is a person this secretive going to be a model of open government? Or is it going to be a model of "doing whatever I can get away with as long as nobody else finds out about it?"


Romney is not a person of good moral character.

Thursday, October 25, 2012

Failures in Romney's Economic Proposals - Wealth Inequality

Adam Smith's "invisible hand", whereby a free market economy benefits society as a whole, requires an assumption of near-equal economic power.

Some are going to read this and think that nothing more absurd has ever been written. Clearly, free markets care nothing about differences in income.

While it is true that the free market has nothing to say about differences in income as a result or output of the system, its "invisible hand" component still requires economic equality as an input or Adam Smith's "invisible hand" will not work as advertised.

The way free markets are supposed to work, they direct goods and services to those who value them more. It's a simple process. If you want something more than somebody else, you are willing to pay more to get it. As prices rise, some people quit buying - they are just not willing to pay as much. The people who keep buying as the prices rise are the people who really want or need what is being sold. The free market guarantees that things go to their most highly values use, while trivial and less important uses fall are given up.


Well, yes . . . IF we add the hidden premise that all bidders have the same economic power. However, it becomes false the instant we abandon this assumption of economic equality. Furthermore, as economic inequality increases, Adam Smith's invisible hand becomes less and less effective.

Imagine that a hurricane has hit a major city. There is little fresh water. One person with a few bottles of water offers to sell a bottle. There are two bidders. A mother who wants the water to give to her sick and dehydrated child, and another who wants it so she can shampoo her pet poodle. Let us imagine, just for the sake of argument, that the mother desperately wants to save her child - she fears for her child's life. While the other thinks that her poodle would like to be clean, but it is not a priority concern.

The water would go to the mother. The woman with the poodle would be the first to give up in a bidding war.

The free market works - Adam Smith's invisible hand sees the water going to the person who values it more.

But now we will add the assumption that the poodle owner has $20 million dollars, while the mother of the sick child has $20.

Now, is it still true that the free market will assign the water bottle to the person who values it more?

No, it is not.

$20 to the person with $20 million is like 0.0001 cents to the person with $20. The poodle owner can raise the price to $200 without a care. However, she is not stupid. There's no need to. She can get the bottle of water for $20 - and it may well be worth it for her to do so.

The important fact is that $20 is not the price at which the poodle owner proves to the market that she values shampooing her dog more than the mother values the well-being of her sick child. It's the price at which she proves that she has more money than the mother of the sick child can spend.

Give the two mothers equal economic power - donate $20 million to the mother of the sick child - and we will see who values the water more. If the assumption of economic equality is true, the market will give the water to the woman who values it more. Where that assumption is not true, the free market will, at times, give the water to the person with the most money to spend even where that person values it less.

The more economic inequality we have, the more this happens.

It is a well-known economic phenomenon. As incomes rise in a region, those with money begin to buy more meat. In doing this, they bid up the price of grain. They purchase better tasting food for themselves, and those with less money starve as a result. Yet, certainly, those with money do not value the taste of a steak more than those without value the calories and nutrients in seven loaves of bread.

We see it today where those with money want energy, some of which they make out of corn - bidding up the price of corn and, in doing so, bidding food off of the table of people who are literally starving to death. A number of children will die to provide this energy to those who can afford to pay for it. Yet, there is no sense to the claim that the rich like their "clean energy" more than the poor mother hates to see her child starve to death.

The rich also bid food away from the poor by bidding away the land on which food can be grown, using food-land for their estates.

The things that the wealthy are able to bid away from poor people (who have a higher-value use for those goods and services but no money to spend on them) is not limited to food. It includes quality medical care, quality education, and energy itself. The wealthy can spend thousands of dollars on energy for pleasure cruises and airplane trips while the elderly couple freeze to death in their homes.

Other things included in this list is access to the media - and, with this the ability to determine what people believe by determining what they see and hear. They create Fox News and fill it with market-tested propaganda to get people to believe what it is profitable to them to have people believe.

This also includes access to political power.

How many millions of dollars have you contributed to super-packs recently? How many television spots can you afford? How many times have you heard an advertisement that you judged false or misleading where - with enough money and the right connections that money buys - you could have gotten that message out to the public? Instead, the only people who see it are a few people on your friend's list or who read your blog - tweets and blog postings that have to compete with the slick market-tested products of those with money.

These are not areas where the free market are directing the resources to the users who value them the most - where Adam Smith's invisible hand provides a benefit to all of society. These are areas where those with money but who value something less are bidding them away from those without so much money but who actually value them more.

Of course, we are not told about this hidden assumption of economic equality built into these arguments of how the free market benefits all. Where this assumption is true, Romney's economic plan will benefit all. Where it is false - where there are vast differences in the amount of money people have to spend - it creates a system where economic goods are accumulated - not by those who value them more, but by those with more money to spend.

Wednesday, October 24, 2012

Failures in Romney's Economic Proposals - Legitimate Market Transactions

Sorry, I took some time off to suffer from an illness, but I am better now.

I was discussing how Romney's economic plans would fail in the real world - and doing so from a capitalist free-market perspective.

In earlier posts I mentioned how his plan fails to harvest positive externalities (e.g., from education and public health measures). Furthermore, it allows for rampant negative externalities - costs that are forced on others against their will and without compensation such as the costs of pollution and climate change.

In this post, I wish to discuss the fact that the plan Romney is defending is one that requires that all agents be perfectly informed and rational - regardless of any action that other agents may take. In the real world where this is not the case it allows for exploitive business practices that violate fundamental principles of a free-market system.

Free market economics say that a market transaction between two rational and well-informed agents, free from force or fraud, benefit both parties. This is what makes it possible for agents pursuing their own interests in a market free - one in which force and fraud are eliminated to employ Adam Smith's "invisible hand" to benefit all of society. Billions of these individual transactions every day, each benefitting both parties, adds up to a sizable overall benefit across whole societies.

That's the theory.

Please note that the theory only applies to transactions among informed and irrational agents that are free of force and fraud. If these criteria are not met, one party ends up obtaining a benefit at the expense of others. More often than not, the benefit acquired by those using force or fraud or taking advantage of the ignorance and irrationality of others obtain less of a benefit than their victims suffer in terms of cost. This produces a net loss in overall social well-being.

To see this in practice, ask a free-market economists what free market principles have to say about an adult enticing a child into engaging in dangerous sex acts. This will give you an idea of the importance that free market principles place on informed consent in defining a legitimate market transactions.

I want to put some emphasis here on the concept of a legitimate market transaction. This is what Romney's economic plans are ignoring, to a large degree.

Free market economics draws a line between legitimate and illegitimate transactions based on the use of force or fraud or on parties being ill-informed or irrational.

These terms are not clear-cut (as some might imagine).

A boss finds an employee with a sick child to be attractive. "Have sex with me or you will lose your job and your medical coverage." Is this a legitimate transaction? Or is it a form of rape comparable to, "Have sex with me or I will shatter your child's skull against the concrete?"

Is it the case that failure to reveal certain information the another party counts as "fraud"? If I do not tell you that the car I am selling you requires a special type of motor oil that costs $100 per quart, have I lied to you in order to manipulate you into a transaction you would not have agreed to as an informed customer?

What counts as "informed consent?"

Who gets to answer these questions? How do they get decided? What are the correct decisions? What criteria determine which answer is correct or incorrect? How do we resolve disputes?

Romney and his kind like to protest "regulation".

What they bypass is the fact that free markets are a regulatory system. They are a set of rules for distinguishing between legitimate and illegitimate market transactions.

What many of Romney's backers are demanding in their call to repeal regulation is actually a call to repeal free-market capitalism. They are seeking a liberty to use force where the free market would prohibit it (such as in generating negative externalities as discussed in the previous post) that free markets would not permit. They are also seeking a liberty to engage in manipulative and exploitive marketing practices that would violate the principles of informed consent that Adam Smith's invisible hand would require.

Not surprisingly, they have an incentive to weaken these restrictions. They restrict the amount of wealth that the super rich can extract from the poor and middle class. Why trade with the poor and middle class when you can take from them? To take from them in a democracy you convince them that free market principles that protect them are "regulations" that are "bad for the economy". You use this to persuade them to vote away the rights that free market principles would insist on protecting. Once they vote away these rights, they are open to plunder in ways that force wealth transfers from the poor and middle class to the rich.

The recent banking practices that resulted in the economic crash of 2008 provide an example. The lending practices that these business engaged in to make their profits were not "free market" transactions. They were exploitive and manipulative offers that depended on customers being ill-informed and irrational about the true potential costs of the agreements they were getting into. And the banks continued to demand the "right" to engage in these exploitive and manipulative practices, even though free-market economics would condemn them as illegitimate.

Without these safeguards, what free market principles say have to be purchased from the middle class and the poor in legitimate market transactions can be taken through force and manipulation instead. And taking is much better than buying - at least from the point of view of the taker. Or, in this case, from the point of the view of those whose lobbyists can persuade the government to grant them a liberty to manipulate others.

The question I continue to ask is: How much wealth redistribution from the rich to the poor would we need if we simply stopped the forced transfer of wealth from the poor and middle class to the rich?

How many lobbyists are on your payroll? And do you really think the lobbyists working for those who can afford to pay them are not ultimately getting paid to use the government transfer wealth - or to obtain a liberty to transfer wealth - from your pocket to those who can afford to pay them? They are earning a profit for their employers, or they would not be there.

Romney's economic plan might work in a world of perfectly informed and rational agents who cannot be exploited or manipulated. In the real world, they provide a recipe for the forced transfer of wealth from the poor and middle class to the rich. In ways that violate the fundamental principles of free market economics.

But, then, maybe that's the point.

Wednesday, October 17, 2012

Failures in Romney's Economic Proposals - Negative Externalities

The topic of negative externalities identifies a place where the Republican Party completely abandons its own morality.

Free market economics calls for defending certain rights to life, liberty, and property. It condemns violations of those rights. However, within the topic of negative externalities, the accepted position of most Republicans (though not all - an important minority on this point can still sometimes be heard) is that the owners of capital shall be free to kill, maim, and poison people and to destroy their party - even to destroy whole cities and wipe out whole nations - when it profits them to do so.

The first reaction many are likely to have to this statement is that it is an example of politically motivated exaggeration that is common this time of year.

Actually, it is not. It is quite literally true exactly as written. Though you do have to take care to note that "as written" includes the phrase "within the topic of negative externalities". Failure to note this clause could lead to misinterpretations of what I wrote.

What follows is a demonstration of this fact, as well as an explanation of how it stands in direct violation of the principles of rights and free markets that Republicans claim to support.

What are negative externalities?

Negative externalities are costs created by some activity that are forced on other people.

For example, let's say that I begin to tan hides on my back porch so that I can sell these hides. This produces a horrible stench. You live next door. Even with your windows closed, the stench seeps into you house. It is nearly enough to make you vomit.

How much would it be worth to you to avoid that smell? How much do you think you would have to knock off of the price of your house to get others to buy it if you put it up for sale?

These are costs. They are costs that are created by my act of tanning hides in my back yard. However, they are not costs that I have to pay. These costs are being forced on you - against your will. You get no compensation. You do not even get a share of the profits that I receive when I sell my hides.

These types of costs are negative externalities. We find them when companies produce obnoxious noises and smells, poison the air and water, and even when they contribute to climate change that - in turn - spreads disease, destroys property due to sea-level rise and extreme weather events, promotes drought, and inflicts similar harms on others.

Free markets abhor negative externalities. They prevent markets from being free, actually. They represent a form of forced transfer of wealth from those who suffer the costs of negative externalities to those who are making a profit without offering any form of compensation. If you are truly a supporter of free markets, then you too must abhor negative externalities and be seeking ways, where possible, to internalize these costs.

Let us add some sample numbers that illustrate the costs of negative externalities - how they violate free-market principles - and why these costs must be internalized for free markets to work as they should.

How much would you be willing to take, in the form of compensation, to put up with the stench. We can assume that you would do so for $10 million, but not for $1. There is some amount in the middle where "the stench and the money" is equal in value to "no stench and no money". Let us say, for the sake of this example, that this amount is $500 per month.

I am profiting from an activity that is costing you $500 per month. In economic terms, this is no different than me gaining access to your bank account and simply subtracting $500 from your bank account as a part of running my business. I am not taking the money - or the value - per se. I am simply destroying it. If it was my own $500 per month being destroyed, I would have an incentive to do something about it - to stop it. However, because it is your $500 being destroyed, I have no incentive to prevent it, and I allow it to continue.

Internalizing the costs - which is what the free market demands - means that if I create a cost for others, that cost must come out of my own pocket. I must compensate people for the harms done at least to the point that "harm plus money" is of equal value to the person being harmed as "no harm plus no money". If I do not, the market is not free nor is it running efficiently.

Let us say that I cannot afford the $500 per month it would take to compensate you for the harms done. My business only brings in an extra $400 per month. According to free-market economics, this business should not exist. Its costs to society are greater than its benefits. It is a business that makes people - all things considered - worse off rather than better off.

Now, let us assume that there is a process I could use costing $200 per month more that has no smell. If costs are internalized - if I have to pay you $500 per month as compensation for the smell - I now have an incentive to adopt this $200 alternative. I spend $200 per month, I save $500 per month, so I benefit. Free market principles where costs have been internalized give people an incentive to do things that benefit the community.

However, if I am free to impose these negative external costs on you with impunity, then why should I spend $200 for a procedure that would reduce the smell? I get nothing out of it. You are paying the costs of the smell, not me. Perhaps you want to pay me $200 to adopt the procedure. Personally, I am going to charge you $495. You still get at $5 benefit. Or, better yet, I might threaten to produce a smell so bad you would pay me $1000 to get rid of it - and then charge you $995 not to use it.

There is also a right's based moral argument that generates the same conclusion.

Let us assume that you bake a pie. It is your pie. If I want any of it, I must offer you enough in exchange to get you to voluntarily give up a slice of pie. If I take the pie without just compensation, I am a thief. If I spit on the pie, or I pour a cup of motor oil on it - in other words, if I pollute the pie - I have destroyed or diminished its value. I owe you a pie. Rights-based morality demands this. Nobody can claim to be a consistent defender of rights-based morality and hold that I can destroy the value of your pie by polluting it without owing you compensation for harms done.

However, the Republican position on these things is that, while a common citizen may not destroy another person's pie, a factory owner can destroy her health, poison the water she drinks and the air she breathes, even destroy her property, and not owe her a dime in compensation. Environmental regulations that would prohibit these activities, or that would require that the owner pay some sort of fee that can go to compensating victims for their costs - represent "excessive government intrusion" and is to be condemned. The Republican position is that those who own factories or other means of production must be permitted to kill, maim, and poison people - and destroy their property - with impunity.

If anybody has to pay for these harms done, it is the government, not the people who do the harm. And having the government pay for these harms itself represents an unacceptable "growth of government" that ought not to take the place of these people suffering the costs themselves.

So far, I have been talking about pies and a $500 stench. This may give the illusion that these cases are trivial - and as such they really do not matter.

However, these examples only illustrate the principles. Climate change provides a prime example of a real-life application of these principles. Here, the Republican position is to permit people to engage in activities that threaten to destroy whole cities, wipe out whole nations, decimate whole populations, submerge tens of thousands of square miles of property under sea-level rise, promote the spread of disease that will kill millions, prematurely kill countless elderly with heat stress - without paying one single dime in compensation to the victims.

The rich get to pocket their profits - the poor get the bills.

In principle, it is no different than the hide-tanner forcing a $500 cost on his neighbor or the person destroying the pie. In fact, greenhouse gas emitters are forcing death on hundrends of millions of people and the complete destruction of vast amounts of property.

This is not a mere academic exercise. This is not something that one should be able to read and shrug and say, "I don't care" - any more than one should shrug one's shoulders with indifference to setting of a nuclear warhead in a major city. This is a moral wrong of tremendous proportion - not by some outside standard that Republicans reject anyway, but by its own standards.

To preserve their egos, they simply ignore the evil they defend. "These things are wrong and those who do or defend these things" go in one mental compartment. "I do or defend these things" go into another, and they are kept far apart in the Republican brain.

Romney's economic package could work in a fantasy world where negative externalities do not exist. In the real world where negative externalities are common, and in some cases massively destructive. A Republican true to his moral principles will be telling the world his plans to internalize these costs and to prevent the forced transfers of wealth from those who do harm to those harmed. However, the official Republican position is that those with capital must be free to kill, maim, and poison others - and destroy their property - whenever it is profitable to do so, as long as the method for doing so is the production of "negative externalities."

Tuesday, October 16, 2012

Failures in Romney's Economic Proposals - Postitive Externalities

I am a fan of free markets. However, I am no fan of the Republican Party when it ignores what is understood about how markets work. This poisonous brew they are selling and that they want us to drink over the next four years is a poor imitation of a free market system that will leave many of us worse off than we would otherwise have been.

The first of its problems that I will discuss is the fact that many positive externalities are ignored. This leaves people worse off than they would have been if these positive externalities could be harvested.

Here is an experiment that you can repeat with any group of strangers that demonstrates the fact that things that produce positive externalities are underfunded when left to voluntary contributions.

Let us assume that you have collected 10 strangers in a room. In the middle of the room you place a "magic money machine". The way this machine works is that when somebody puts $20 into the machine, $5 will appear in the pockets of everybody in the room (or something worth $5 will appear in the lives of everybody in the room).

There really is no magic money machine. In this experiment, what you will do is tell people that if anybody gives you $20, you will give everybody in the room $5. You can use monopoly money if you wish - as long as you announce that, at the end of the game, the person with the most money wins.

Then, see what happens.

What the machine represents is not magic either. It represents goods that produce a positive externalities - benefits for people other than the people who pay for them.

If one person sprays a stagnate pool for mosquitoes, everybody benefits from fewer mosquitoes (and less malaria or West Nile). If one person gets a flu shot, everybody benefits from having one less path for the flu virus to travel through to get to Great Aunt Nellie or little baby George. If one person finds and confines a rapist, everybody benefits from greater safety for themselves and those they care about. If one person pays a company upwind from town to produce less pollution, everybody gets to breathe cleaner air.

These things exist in the real world. The "magic money machine" simply captures the economically essential properties in an easy to grasp example. One person spends the money. His benefit is less than the cost. However, the overall public benefit is greater than the cost.

This is an experiment you can run anywhere at any time so you can see how it works.

Now, you have your magic money machine in the middle of the room. You tell people that if any of them gives you $20, you will take it and give everybody $5. You might want to limit this to one $20 contribution per person.

If everybody gives you $20, everybody walks away with $50. However, if one person keeps his $20, then everybody else leaves with $45, but he leaves with $65 - a smart move. Remember, the person with the most money at the end of the game wins. However, if everybody does this "smart move", everybody leaves with just $20, when they could have left with $50 if they were just less smart.

The question is: How do you fund goods that produce positive externalities.

My objection to Romney's economic plan is that he provides no way for funding goods that produce positive externalities. He would have everybody keep their own $20 in their own pockets, and only spend money where they, themselves, get more back from the investment than they put into it. He claims that this will make everybody better off. However, in the real world - a world in which some goods produce positive externalities (produce more social good than good for the person who spends the money), it leaves people poorer and worse off than they would otherwise be.

Let us collect 10 more strangers and put them in another room. We make them the same offer. Chances are, we will get the same results. Nobody invest $20 to give everybody $5 except the sickeningly irrational and unselfish "bleeding heart liberal" who actually likes the fact that he has produced a social benefit. Yet, for his efforts, he ends up poorer - and the person who would never dream of parting with even one dime ends up wealthier and more powerful.

However, in this room we will introduce a new policy option. If enough people agree to it, you will impose a $5 tax on each person and feed that money into the magic money machine (into goods that produce positive externalities such as those presented above). With this $5 tax, everybody ends up with $50.

While, at the same time, in the room next door where people are waiting for voluntary contributions from people who are told that it is simply wrong to do anything that leaves you, personally, worse off - everybody has $20.

Please note how this follows the "conservative" plan with respect to global warming. The official Republican position is to wait around for people to voluntarily contribute to reducing greenhouse gas emissions in an environment where one is punished for doing anything that benefits people generally but leaves the investor worse off. We do see some sickingly irrational and unselfish "bleeding heart liberal" types making these contributions. But they end up poorer, while those who would never dream of parting with even one dime end up wealthier and more powerful.

At this point, the conservative charge - at it is a valid point - is that the government method of collecting taxes and feeding them into the magic money machine (economic goods producing positive externalities) is inefficient and prone to corruption. The government does a poor job of deciding what produces positive externalities and funding them at the appropriate levels. Instead, the money gets diverted to cronies and campaign contributors, lost to corruption and bureaucratic red tape.

These are serious problems.

However, the people in the room that taxes people to fund goods that produces positive externalities can argue that, even with $20 of inefficiency, the $30 it leaves in everybody's pocket still leaves them better than the people with $20 where nobody funds these goods.

This is not to say that corruption, red-tape, and pork can be ignored. Here, too, if $5 invested in reducing these inefficiencies produces $10 worth of efficiency, it is worthwhile to make the investment - but that is a side-issue.

Furthermore, these problems exist for all goods that produce positive externalities, not just those that Romney and company decide to ignore.

There are two sources of positive externalities that conservatives do not ignore - national defense and criminal law. America has more people (per capita) in prison than any other country. We spend huge amounts of money keeping people behind bars. Plus, we have a massive military - much larger than that of any other country.

How do conservatives justify spending money on these things?

The argument is that these are "public goods". They are goods that produce positive externalities and, because of this, they tend to be under-funded if we leave their funding up to voluntary contributions. What happens is, just as is shown in the example of the magic money machine, people are prone to hang on to their money and to wait for others to make voluntary contributions that leaves them poorer but those who do not spend a dime on such things wealthier and more powerful.

The conservative answer to this problem is to use the government to tax people in order to make sure that the military and police/prison systems are properly funded. Proper funding, in this case, is funding that approximately equals the value of the benefits people obtain living in a society where they are well defended from external and internal threats.

At this point a charge can be made that the government method of collecting taxes to fund the military and police system is inefficient and prone to corruption. The government does a poor job of deciding what to invest in - wasting money on such things as a war on drugs and other victimless crimes. A lot of the money gets diverted to cronies and campaign contributors, or gets lost to corruption and bureaucratic red tape.

Against this, the conservatives can answer that we are still better off taxing people in order to fund these services that produce these positive externalities. We are still better off with the corruption and inefficiencies of government than we would be if we did not tax people to invest in goods that produced these positive externalities.

As these examples illustrate, free market economics is quite confortable with the fact that there are some goods that produce positive externalities, that these goods will be under-funded if we stand around waiting for people to make voluntary contributions (particularly contributions that leave them poorer and weaker while those who do not contribute become wealthier and more powerful). In these cases, it is a legitimate purpose of government to collect money from people proportional to the benefit they receive in order to fund these public goods.

Romeny's plan will work great in an imaginary world where military and police are the only goods that produce positive externalities. However, they will fail in the real world where this is simply not true. They will leave us standing around with money in our pocket that could be invested in goods producing positive externalities. However, these investments will not be made because - on his system - wealth and power are accumulated in the hands of those who refuse to fund such things.

Monday, October 15, 2012

Four Problems with Romney's Economic Proposals: Introduction

Over the course of the next four days, I am going to discuss four reasons why Romney's economic intentions will fail.

Furthermore, I will make this criticism from within the context of free-market economics. Effectively, I will make it from a context which Romney's running mate Paul Ryan would have to agree with - if he is at all consistent with the free-market principles he claims to uphold.

Free market economics actually tries to be about the real world. It tries to incorporate facts about the real world into its system. What Romney and company is peddling, on the other hand, is a cheap knock-off of capitalism that profits the seller and poisons the buyer. They steam the label off of capitalism and put it on their snake-oil as a way of increasing sales - a way of getting more voters to buy it. It will kill some of those buyers, maim others, and otherwise impoverish still more. It will, however, profit the sellers.

In order for Romney's snake-oil to be effective, the following four things will have to be true:

(1) There are no positive externalities.

(2) There are no negative externalities

(3) All agents are perfectly rational and fully informed.

(4) All agents have the same economic power.

In the real world, none of these are true. Consequently, in the real world, Romney's snake oil will not work. The sellers will pocket the money, but the buyers will end up no better off as a result of the snake-oil. Some will end up significantly worse off.

Positive externalities are the side-benefits that people get from living in a community where the population is well-educated and its people understand the real world in which real-world decisions are made. They are the benefits that come from being secure from internal and external threats. It comes from a good infrastructure - a good foundation for the exchange of goods, services, and information. It comes from a population that is healthy and it comes from good sanitation. Any population that does not have these things suffers, and Romney's plans will diminish these things. They will do so, not because Romney is evil (though if I had the moral failings of a typical Fox News commentator I would be claiming that Romney must hate America and is seeking its destruction). It will happen because Romney's plan is blind to positive externalities and makes no room for harvesting their benefits.

Negative externalities are harms inflicted on others in the course of economic activity. Imagine a society in which corporate leaders are free to kill, poison, and maim others - and destroy their property - whenever it profits them to do so. That is what Romney's system provides. The killing, poisoning, maiming, and destroying comes from polluting the air we breathe and the water we drink. It comes from creating dangerous working conditions where the owner of the factory pockets the profits and the injured worker or dead worker's family pockets the bills. It takes the form of destroying cities and whole nations with climate change - destruction that the rich can afford to walk away from, but the vast majority of the residents of areas harmed cannot economically leave.

Perfectly rational and informed agents can efficiently pursue their own interests. Irrational and uninformed agents make mistakes. None of us are perfectly rational and informed. We can't be - we do not have enough time. Therefore, we have reason to support institutions that help us to avoid at least the most serious harms that uninformed and sometimes irrational agents make. Taking away these safeguards leaves us vulnerable not only to our own follies, but to parasites who feed us false information and rhetoric in order to suck out of us our economic life blood. Nobody is in a better position to drain our economic life blood with rhetoric and misinformation than those with enough money to control hire experts in public manipulation - the public relations consultants.

Certainly, Romney's system is not one where he expects everybody to have the same economic power. However, his system is one that will not work as he says it will unless everybody actually has equal economic power. Ideally, in a free market, goods and services go to those who value them more. They go to the person who is willing to pay a little bit more to get them. The person who pays less, it is assumed, did not want it as badly. In reality, where economic power is not equal, people with a trivial interest in certain goods and services can bid them away from others who value them greatly - who even need them for survival. Imagine somebody following you around and each time you go to buy something - food, medical care for your children, gasoline to go to and from work - he offers more than you can afford to pay. There is nothing you can do about it. You have $50,000. He has $50 million. As you die of thirst, you can bid $50,000 for a bottle of water. He can bid $50,001 and pour its contents out at your feet and still have $49,949,999 left over. As he watches you die, he did nothing wrong according to the system Romney advances. You did not want the water as badly as he wanted to watch you die.

Briefly, these are the four real-world facts ignored in Romney's economic plan.

These facts require including in your economic package some method for harvesting positive externalities as well as avoiding negative externalities. It calls for promoting institutions that help less-than-fully-informed and sometimes irrational agents avoid the worst mistakes that such agents can make. It also defends them from those who would manipulate them with rhetoric and misinformation. It is a system that recognizes and respects the fact that $50,000 in the hands of somebody with $50 million is worth a lot less than a bottle of water in the hands of somebody dying of thirst.

These are facts.

Nobody's score in a political debate can change these facts. No amount of entertaining rhetoric will erase these facts or protect people from the harms that will come from ignoring these facts. The person handing you cyanide-laced fruit drink may be quite convincing as he asks you to drink it - but that will not negate the effects of the cyanide.

It is also doubtful that a person can adequately explain these problems with Romney's plans in the two minutes one is allowed in a debate. Fortunately, I do not suffer from having such a limit.

Tomorrow, I discuss positive externalities.